Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the fair value of equity-based compensation and warrants issued with convertible notes, revenue recognition and the evaluation of the collectability of variable consideration, accrued loss provisions on onerous contracts, useful lives of long-lived assets, and the valuation allowance against deferred tax assets.

Accounts Receivable, Net

Accounts receivable due from customers are uncollateralized customer obligations due under normal and customary trade terms. Account receivables are stated at the amount billed to the customer, less an allowance for estimated credit losses.

Inventory, Net

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventory is raw materials. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Costs associated with fabrication, and other costs associated with the manufacturing of products, are recorded as inventory. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales or usage forecasts, we perform an analysis to determine if a write-down for such excess inventories is required. Once inventory has been written down, it creates a new cost basis for inventory. Inventories are classified as current assets in accordance with recognized industry practice. Based on our evaluation, we estimated an inventory allowance of $50,000 at both March 31, 2026 and December 31, 2025.

Property and Equipment

Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method and the estimated useful life of the asset. Expenses for maintenance and repairs are charged to expense as incurred.

The following table presents property and equipment at March 31, 2026 and December 31, 2025:

We are in the process of manufacturing an AirSCWO 1 (“AS1”) model that is expected to process approximately 1 wet ton of waste per day. The AS1 is highly mobile and can be deployed quickly to provide on-site waste destruction services. At March 31, 2026 and December 31, 2025, these manufacturing costs have been classified as equipment in-progress until the AS1 is completed and placed in service, which is expected to occur in the second quarter of 2026.

Depreciation expense for the three months ended March 31, 2026 and 2025 was $190,973 and $145,661, respectively.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and marketable securities. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. Furthermore, we perform ongoing credit evaluations of our customers and generally do not require collateral.

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues, purchases, accounts receivable and accounts payable.

For the three months ended March 31, 2026, we generated approximately 88% of our total consolidated revenues from one customer. For the three months ended March 31, 2025, we generated approximately 69% and 25% of our consolidated revenues with two customers, respectively.  

At March 31, 2026, one customer comprised approximately 95% of our consolidated accounts receivable (which is also reflected in unearned revenue). At December 31, 2025, our consolidated accounts receivable comprised approximately 74% and 10% outstanding with two customers, respectively.

Refer to Note 9 for information on a license agreement we have with Duke University for the SCWO technology used in our systems.

Revenue Recognition

The Company follows the revenue standards of Accounting Standards Codification (“ASC”) Topic 606: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation using the input method.

The Company generates revenue from providing waste destruction services, including the completion of full-scale demonstrations and treatability studies, and the sale of equipment (AirSCWO units) to customers. In the case of equipment revenues, the Company’s performance obligations are satisfied over time as the equipment is being manufactured and are typically long-term fixed price contracts. Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation based on an input method. Equipment sale-related revenues are recognized in the proportion that contract costs incurred bear to total estimated costs to be incurred to complete the equipment contract. The estimated completed percentage is applied to the total transaction price of the fixed price contract. This method is used because management considers the input method to be the best available measure of progress on these contracts.

Changes in our overall expected cost estimates are recognized as a cumulative adjustment for the inception-to-date effective of such change. If these changes in estimates result in a possible loss being incurred on the contract, we accrue for such a loss in the period such an outcome becomes probable.

Services revenues related to bench-scale treatability studies are recognized when all five revenue recognition criteria have been completed which is generally when we deliver a completed treatability study report to the customer. 

Service revenues related to our full demonstrations, using our owned AirSCWO unit, may include multiple performance obligations, typically the demonstration itself and a technical report that summarizes the analysis of materials processed. Management estimates are required in allocating the transaction price between the performance obligations. However, other full-scale demonstrations may include one performance obligation, the demonstration itself. Revenues from such contracts are recognized over time as the demonstration is being completed. 

Orlando Contract

In late 2024, we deployed our Demo System to the City of Orlando’s Iron Bridge Regional Water Reclamation Facility pursuant to a contract executed in March 2024 as part of a full-scale demonstration (the “Demo Contract”). Pursuant to the Demo Contract, the Company was responsible for system design, installation, commissioning and the start-up of the AirSCWO unit at the facility. Further, the Company was to operate and maintain the AirSCWO unit for the demonstration period. Lastly, the Company was to decommission, disassemble and demobilize the AirSCWO unit after the contract period. The Company will receive $812,000 as consideration for the full-scale demonstration.

In accordance with ASC 606-10-25-21, we concluded that the Demo Contract includes one performance obligation related to the full-scale demonstration. The system design, site preparation, installation, commissioning and decommissioning represent fulfillment activities versus separate performance obligations. During the three months ended March 31, 2026, we completed the full-scale demonstration period and have no further obligations under this Demo Contract. At December 31, 2025, we had a contract asset of $91,100 and unearned revenue of $90,666 related to this Demo Contract. During the three months ended March 31, 2026, we recognized service revenue of $482,405, including the unearned revenue at December 31, 2025 on this Demo Contract. During the three months ended March 31, 2026, we expensed $91,100 of a contract asset upon completing the Demo Contract. We did not recognize any revenue on this Demo Contract during the three months ended March 31, 2025.

On January 26, 2026, the Company executed a license agreement with the City of Orlando for use of their space at Iron Bridge Water Reclamation (the “Orlando License Agreement”). Therefore, we will no longer demobilize our owned AirSCWO unit. See Note 9 for further information regarding the Orlando License Agreement.

Olathe Contract

On March 4, 2026, we entered into a purchase order with Garney Companies, Inc. (“Garney”) in connection with the Cedar Creek Wastewater Treatment Plant Expansion Phase II project in Olathe, Kansas. Under the purchase order, the Company will design, fabricate, deliver, install, and commission an AirSCWO 6 supercritical water oxidation unit and related pretreatment, dewatering, and water treatment equipment, and will provide startup, training, and warranty services.

The principal terms of the purchase order are as follows:

The purchase order also contains customary provisions regarding indemnification, insurance, change orders, and dispute resolution, and includes a buy-back provision under which the Company would offer a trade-in credit currently estimated at $1,000,000 if Garney elects to upgrade to an AirSCWO 30 unit.

During the three months ended March 31, 2026, we issued Garney an invoice totaling $2,296,250 upon the execution of the purchase order. At March 31, 2026, this invoice is outstanding and is reflected in accounts receivable and unearned revenue on the condensed consolidated balance sheet. We received payment, less retainage as described above, on this invoice in April 2026. During the three months ended March 31, 2026, no revenue has been recognized on the contract. Revenue will be recognized over the equipment manufacturing period which has not yet commenced. Therefore, we have classified the unearned revenue on this invoice within long-term liabilities.

During the three months ended March 31, 2026 and 2025, we generated service revenue from treatability studies of $26,000 and $32,690 respectively, and destruction services of $42,750 and $0 during the three months ended March 31, 2026 and 2025, respectively.

During the three months ended March 31, 2025, we completed a full-scale demonstration and recognized $376,000 of service revenue upon completion and recognized $134,410 of equipment revenue related to our contract our contract with the Orange County Sanitation District (“OC San”).

Contract costs include all direct material, labor and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation.

Research and Development Costs

The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $449,834 and $533,587 for the three months ended March 31, 2026 and 2025, respectively.

Loss Per Share

Loss per share is computed in accordance with ASC Topic 260, “Earnings per Share.” Basic weighted-average number of shares of common stock outstanding for the three- months ended March 31, 2026 and 2025 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. At March 31, 2026 and March 31, 2025, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be antidilutive: options for 1,068,242 and 1,640,906 shares of common stock, respectively, 1,037,524 and 1,467,524, respectively, of outstanding common stock warrants and unvested restricted stock units of 415,616 and 593,157, respectively.

Recent Accounting Pronouncements - Not Yet Adopted

Accounting Standards Update 2024-03, Disaggregation of Income Statement Expenses (“DISE”). In November 2024, the FASB issued a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.

The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.